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A firm has found itself having cash flow problems. It pays its suppliers on terms of 1/10 net 35. In the past, it has always taken the cash discount. However, it finds itself in a situation where it cannot come up with the cash needed to pay within 10 days for purchases. In 35 days, it will have the necessary cash. If it chooses to borrow money to pay for purchases it would be forced to go to a finance company specializing in high-risk loans. It would be forced to pay a rate 36 percent compounded monthly on the loan. What should the firm do?

A firm has found itself having cash flow problems. It pays its suppliers on terms of 1/10 net 35. In the past, it has always taken the cash discount. However, it finds itself in a situation where it cannot come up with the cash needed to pay within 10 days for purchases. In 35 days, it will have the necessary cash. If it chooses to borrow money to pay for purchases it would be forced to go to a finance company specializing in high-risk loans. It would be forced to pay a rate 36 percent compounded monthly on the loan. What should the firm do?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q1. A firm has found itself having cash flow problems. It pays its suppliers on terms of 1/10 net 35. In the past, it has always taken the cash discount. However, it finds itself in a situation where it cannot come up with the cash needed to pay within 10 days for purchases. In 35 days, it will have the necessary cash. If it chooses to borrow money to pay for purchases it would be forced to go to a finance company specializing in high-risk loans. It would be forced to pay a rate 36 percent compounded monthly on the loan. What should the firm do?

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